Zhao also agreed to step down as chief executive of Binance. He will be replaced by Richard Teng, the company’s global head of regional markets.
The company pleaded guilty to violating the Bank Secrecy Act, which requires financial institutions to verify the identities of their customers and report suspicious activity that might be a sign of money laundering, tax evasion or other crimes. It also pleaded guilty to failing to register as a money-transfer business and violating sanctions law.
The deal is the culmination of a three-year investigation by the Justice Department and comes months after Binance had been accused by regulators of operating as an unregistered securities exchange.
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Zhao had been one of the most powerful forces in cryptocurrency, sparring with regulators for years. He has an estimated net worth of $23.5 billion, according to the Bloomberg Billionaires Index, largely from his vast crypto holdings and equity in Binance. He also was an original investor in FTX, the beleaguered crypto exchange founded by Sam Bankman-Fried, who was convicted of seven counts of fraud and money laundering earlier this month in New York.
“Today, I stepped down as CEO of Binance,” Zhao said in a lengthy post on X, formerly Twitter, that did not mention his guilty plea. “I made mistakes, and I must take responsibility. This is best for our community, for Binance, and for myself.”
The federal probe into Binance comes at a time of deep uncertainty for the crypto industry amid concerns about the freewheeling, largely unregulated online marketplaces where digital assets are bought and sold. Tuesday’s pleas will expedite the demise of the exchange’s American arm, BinanceUS, which restricted its customers from trading U.S. dollars on its platform in June.
Prosecutors said Binance chose not to implement anti-money-laundering measures, essentially allowing the firm to become a clearinghouse for all manner of illicit financial transactions. From 2018 to 2022, they said, nearly $900 million in financial transactions were made that violated sanctions against Iran, the court papers charge.
The filings paint Zhao as the architect of a system that intentionally shielded American customers from the supervision of U.S. regulators, to the financial gain of the firm. Binance would refer to U.S. customers as “VIPs” who were handled by a separate manager, court filings allege. Zhao called its revenue from U.S. users a “grey zone.”
“Better to ask for forgiveness than permission,” Zhao wrote.
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In its announcement, the Treasury Department accused Binance of allowing Hamas’s Izzedine al-Qassam Brigades, Palestinian Islamic Jihad, al-Qaeda and the Islamic State “to transact freely, supporting activities from child sexual abuse to illegal narcotics to terrorism.”
The agency will monitor Binance’s financial records for five years under the threat of a $150 million penalty. Tuesday’s settlement will also ensure Binance’s “complete exit from the United States,” according to a statement.
Treasury Secretary Janet L. Yellen said in a statement that the company “allowed money to flow to terrorists, cybercriminals, and child abusers through its platform.”
In June, the Securities and Exchange Commission came after Binance and Coinbase, another crypto exchange, asking Binance to freeze all assets on its U.S. platform and accusing Coinbase of acting as a securities exchange, broker and clearing agency.
In the months that followed, around a dozen of Binance’s senior directors and executives left the company, according to company statements.
“Binance became the world’s largest cryptocurrency exchange in part because of the crimes it committed — now it is paying one of the largest corporate penalties in U.S. history,” said Attorney General Merrick Garland. He noted that in the past month, the Justice Department has won a guilty plea or a conviction of the leaders of two of the world’s largest cryptocurrency exchanges — Zhao and Bankman-Fried.
Authorities said that Binance earned a 20 percent reduction in its sentencing fine for cooperating with investigators, but noted that it did not receive full credit for cooperation because it delayed producing key evidence, including recordings of meetings in which executives talked about U.S. legal requirements.
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Tuesday’s announcements cap a tumultuous few months for the broader crypto industry, following the high-profile fraud trial of Bankman-Fried and a regulatory push by Sen. Elizabeth Warren (D-Mass.) and other policymakers to crack down on cryptocurrency being used to finance terrorism.
With the multibillion-dollar fine and legal action, the government is delivering a message well beyond Binance to the broader cryptocurrency sector, said Kit Addleman, partner at Haynes and Boone and former director of the SEC’s Atlanta-region office.
“The government’s message really is about compliance with federal laws on financial sanctions, and the government wants that to apply in the cryptocurrency world just as it does with fiat currency,” Addleman said.
The plea deal is another victory for federal regulators in their effort to rid bad crypto actors from the United States, said Carl Tobias, a law professor at the University of Richmond.
“Especially after what they did in the Southern District of New York with the other big crypto story this year,” he said, referring to Bankman-Fried’s conviction.
On Nov. 2, Bankman-Fried was convicted of fraud, conspiracy and money laundering for orchestrating one of the largest financial frauds in history. Prosecutors say his victims suffered nearly $10 billion in losses after FTX misappropriated customer funds to spend lavishly on luxury real estate, investments and “dark money” political donations.
He faces the prospect of decades in prison when he is sentenced in late March.
In his statement posted on X, Zhao said he doesn’t see himself becoming CEO of a new company in the three years before he’s allowed to return to Binance. But he hasn’t closed the door on other opportunities.
“Should there be listeners, I may be open to being a coach/mentor to a small number of entrepreneurs,” he said.
